Monday, January 21, 2013

The poverty of corporate leadership in India?

I happened across a recent interview of Deepak Parekh, Chairman of HDFC, who after the exit of Ratan Tata is being projected as the elder statesman of corporate India. Asked about three key things that the government should focus on in 2013 for the economy to look up, he said,

Three key things I would suggest the government to focus on in 2013 are kickstarting investments, reducing the fiscal and current account deficit and putting big projects on the fast track. We need to reignite the investment cycle. India is desperate for fresh capital; we need to start new projects and raise our capital spending. There is a fear of not getting land, approvals and power for any big investment. This climate must change; investors would come out and invest only in a stable environment.

Second, India needs to reduce its fiscal and current account deficits. The budgetary fiscal deficit target was set at 5.3 percent of the GDP, but we are heading to close somewhere around 5.9 percent, with rating agencies already threatening us with junk status. So the government must ensure that sufficient revenues are generated... besides disinvestment, which may bring in another Rs 30,000 crore — an amount the government has also asked PSUs like RCF, Oil India and NTPC to raise in 2013... Third, and a critical step, would be to fast-track existing projects that have been stuck due to shortage of raw materials or lack of environmental and other clearances.

While reading the three priorities, I could not but avoid getting the impression that he was talking about the three most important things for corporate India, and not the Indian economy. A straight translation of the three priorities of this corporate leader would come out as - more liberalization, rolling back subsidies, higher infrastructure investments, aggressive disinvestment, lowering interest rates, and expediting land acquisition and environmental clearances.

The poverty, even brazenness, of such an exhortation is stunning, especially from someone who is projected as a highly credible voice from corporate India. There is a difference between acting as a spokesperson of corporate India and being a senior and important statesman, who claims to contribute positively towards shaping the future of India. Sure, many, but not all, of these reforms are critical for economic growth. But all of them are policies that are much more important for corporate India.

What about policies that are important for the rest of India? I would believe that these are policies that address more fundamental issues of improving governance, state capability, job creation, social safety net, and so on. In no way am I arguing that one set of policies are more important than the other. But the assumption that what is good for corporate India is also good for the rest of India is clearly untenable. We have enough recent evidence that economic growth and business profitability does not automatically translate into jobs.

But there is nothing surprising about Deepak Parekh's advice. What is surprising is how much opinion space these people occupy in discussions about India's future. When was the last time that a corporate leader called for a universal health insurance system or a national social safety net? Who was the last leader from corporate India who had something sensible to talk about improving India's pathetic state capability? It is no good to repeat ad-nauseam about the distortions caused by NREGS and thereby advocate its scrapping without offering suggestions about what can be done to address the critical underlying challenge of providing some form of employment guarantee to the millions affected by India's latest period of jobless high GDP growth.

The views of corporate India and much of the commentary on reforming subsidies and government welfare systems is condescending and see them as undesirable. In fact, subsidy, of any kind, has become a four-letter word for this part of India. I say this because, if we are genuinely talking about reforming subsidies, about increasing its effectiveness without compromising on objectives (dare I say that there is a reasonable consensus that atleast some of the subsidies should stay), we cannot so flippantly talk about reduction of fiscal deficit without also alluding, atleast in brief, about how to achieve that. Only once we start thinking about these issues will we really begin to eschew making such brazenly partisan remarks.

Merely parroting reduction of fiscal deficit or roll back of subsidy in general terms without making even a passing mention of how to do it (of course, nowadays, everyone has the magic pill - cash transfers!) is a reflection or either ignorance or partisanship or political posturing, all of which are undesirable. In one snapshot Deepak Parekh's comment captures the increasing disconnect between one part of India, obsessed with business confidence and India's investment image abroad, and the majority, who form the rest of India and who struggle to eke out subsistence livelihoods and have social and health indicators that would shame even sub-Saharan African countries.

In purely economic and business sense, this is complete short-sightedness, a desire to maximize short-run returns. Corporate India needs to realize that its long-term success has to be built on the prosperity of the vast majority of Indians. Their deprivation is a recipe for political disorder that will seriously undermine macroeconomic stability. The very climate of business confidence and external investment image will be the casualty.

Just consider this. Amidst all the recent scandals of crony capitalism, the mainstream debates have conveniently overlooked the fact that its responsibility cannot be confined to government and politicians alone. Corporate India, including some of its leading names, played its murky, equally abhorrent, part in these scandals. In a more just world, many of these "captains" should have been languishing in jails. In fact, it could be logically argued that the politicians and officials were only responding to the actions of corporate groups, who realized the massive fortunes to be had by subverting the rules of the game or the prevailing policy frameworks.

It requires no great insight to argue that corporate India should have done the same level of soul-searching and introspection that it was demanding politicians do. Disappointingly, there has been little talk about this. I cannot remember any major corporate leader talking about the need to shine the torch lights within corporate India itself.

I am not surprised since many of modern India's corporate fortunes are built either on the graft-greased props of the earlier license permit raj or the current crony capitalism. Crony capitalism may deliver short term windfalls, but is not sustainable. Similarly, image boosting reform gymnastics cannot make India better than it really is. Corporate India would do well to realize.

I think your observations hold true for a lot of leading lights across politics - industry - academics. Makes me believe that the reason why we can never make any reasonable progress on improving governance or get our priorities right is due a flawed belief that there is a social pain vs development trade-off, that we should accept (as long as it doesn't affect 'us'!)

Also, in the framework of "whats good for GM is good for the country", a narrow view now suggests that a governments core priority is to smooth the environment for business.

And here's an example of the amusing new age dilemma as articulated by no less than a professor of finance and accounting at IIM-A, ( and a big fan of the dominant industry view). The laughable notion that corruption has an instrumentality that aids growth.

In effect, what we are being sold is the idea that problems will take care of themselves - but directly addressing problems like integrity or the problems caused by crony capitalism itself is inimical to growth - and may not be possible or even desirable. I don't even want to address the silly circularity in the argument that treats every problem as needing a societal correction. ( maybe in response to some other post)

Increasingly, a political party's support and legitimacy is acquired through its ability to “facilitate” business while assuaging / managing “social” factors that may collide with the thrust towards business. We have in our current political climate gone a step further aiming to privatize nearly all social obligations of government, justifying this through the cover of economic efficiency.

Clearly, the most powerful structures that support and legitimize government are business and media that are tied to a common understanding of business good as common good.

Government is by this definition largely a facilitator and regulator of business - and the priority in spending / subsidies should be to support businesses. To allow this predominating style of government, conducted by political parties and their supporting networks of mutual patronage, to operate without stringent guidelines for performance and transparency is an environment that is set-up for failure and disregard for common good.

We must take a hard look at the realities of modern governments – the proximate dominance of business to politics and the mutually reinforcing relationship it satisfies for those in power or aspiring to be. The larger public outside this network is treated to a positive externality only when it meets the proximate goal of profits for parties involved in the immediate relationship with power.

The entire bureaucratic set-up closely mirrors this relationship as it effects the levers of governance and has largely degenerated to working for its own sustenance.

That leaves the masses who legitimize government tolerating mediocre or non-existent governance, and at best treated to excellent political spectacle and dubious punditry whipped up by the media as proxy for genuine debate or action.